DEPARTMENT OF HOMELAND SECURITY
Office of Inspector General
Review of FEMA Internal Controls for
Funding Administrative Cost
under State Management Grants
Office of Inspector General
U.S. Department of Homeland Security
Washington, DC 20528
January 9, 2007
MEMORANDUM FOR: Margaret Young
Chief Financial Officer
John R. D'Araujo, Jr.
Director, Recovery Division
FROM. Matt Jadacki $i
Deputy Inspector General
Office of Disaster Assistance Oversight
Review ofFEMA Internal Controls for Funding
Administrative Cost under State Management Grants
Report Number OIG-07-21
We performed a review of state management grants that FEMA awards to states for the
administration of public assistance programs. The objective of the review was to determine the
adequacy of FEMA controls for ensuring that funds awarded were for essential and reasonable grant
Under current FEMA policy, states can receive funding from two sources to cover operations
associated with the administration of public assistance programs (emergency protective measures,
debris removal, repair and restoration of buildings and other public facilities, etc.). States receive a
statutory administrative allowance based on a sliding scale formula tied to the amount of public
assistance awards, as well as state management administrative grants to cover needs that are unmet
by the allowance. The latter form of assistance was the focus of this review.
To test FEMA controls, we selected management grants awarded to the States of Louisiana and
Mississippi for Hurricane Katrina. As of May 31, 2006, FEMA awarded $54 million in management
grants to these states. We reviewed FEMA and state records related to these management grants,
interviewed FEMA, state, and contractor officials, and applied other review procedures considered
necessary under the circumstances.
The nature and brevity of this assignment precluded the use of our normal audit protocols.
Therefore, we did not conduct the review according to generally accepted government auditing
standards. Had we followed such standards, other matters may have come to our attention.
The review was conducted in conjunction with the President's Council on Integrity and Efficiency
(PCIE) as part of its examination of relief efforts provided by the Federal government in the
aftermath of Hurricanes Katrina and Rita. As such, a copy of the report has been forwarded to the
PCIE Homeland Security Working Group, which is coordinating Inspectors' General review of this
important subject. This is the second report addressing administrative costs for public assistance
program activities. The first report, GC-HQ-06-40, dated April 28, 2006, primarily addressed
FEMA policy regarding statutory administrative allowances. In that report, we recommended that
FEMA comply with the Disaster Mitigation Act of 2000 and establish a single funding rate for state
administrative costs. We also recommended that, in the interim, FEMA improve controls over the
statutory allowance. This report addresses improvements for state management grant controls.
RESULTS OF REVIEW
FEMA approved state management grants without a comprehensive grant management plan or
written internal procedures for assessing the need for grant assistance. As a result, controls were not
in place to evaluate the states' needs or to ensure that funds awarded were for bona fide grant
FEMA's response to report GC-HQ-06-40 addressed the above weaknesses in part. However,
additional actions are needed.
State Management Grant Justification
The Louisiana Office of Homeland Security and Emergency Preparedness (grantee), received several
awards totaling $30 million. One of the awards (Project Worksheet 337), approved $29 million for
the retention of a consultant to support ". . .the existing state recovery staff in providing on-site
project manager, grant management, project worksheet development, project applications, reports,
audit and related field inspections." The approved scope of work indicated that the consultant would
hire 160 individuals to perform these activities.
The Mississippi Emergency Management Agency (grantee), received two awards totaling $23.4
million to pay regular salary costs of its own disaster recovery staff and for consultant services. Of
this amount, $20.8 million was designated for consultants to assist the State in project development,
coordination with FEMA and sub-grantees, and for accounting support to sub-grantees. The
approved scope of work indicated that the consultants would hire 77 individuals to perform these
Federal regulation (44 CFR 206.207) requires state grantees to develop a state administrative plan
for public assistance programs with procedures for accomplishing various grant management
functions and for determining its staffing and budgetary needs. The plans must identify grant
management procedures for damage assessments, applicant briefings, processing appeals, financial
management, procurements, monitoring, and determining staffing needs.
The administrative plans for Louisiana and Mississippi contained limited procedures for several
functions, but none for financial management, monitoring, procurement, or staffing. Also, there were
no requirements for nor did the plans address estimated workloads for grant management functions
or the staff resources for those functions. As a result, management grants were not justified by a
thorough analysis of grantees' needs.
In response to report GC-HQ-06-40, FEMA's Recovery Division stated that it developed and begun
implementing new procedures to assist grantees in preparing public assistance administrative plans.
The new procedures provide a more detailed listing of responsibilities states assume as grantees and
require states to develop procedures for each function, determine the number of positions needed for
each function, and justify staffing levels. These procedures, if followed, should address the concerns
of this finding. Therefore, we consider this finding resolved and closed.
Request for State Management Grants
Over 90 percent, or $50 million, of the state management grant awards was used to hire contractors
to assist the state grantees with their grant administration functions. FEMA Response and Recovery
Policy 9525.1 1 state that, "Reasonable costs of contractors performing eligible Grantee functions in
managing the Public Assistance Program are eligible as State Management Administrative Costs."
The policy also references U.S. Office of Management and Budget (OMB) Circular A-87, 2 CFR
FEMA's Office of the Chief Financial Officer (CFO) uses the general principles contained in OMB
Circular A-87 as the primary criteria for reviewing and approving, or disapproving, state
management grant proposals. The Circular identifies the standards for determining allowable costs
under Federal grants and the types of costs that are allowable and unallowable.
While the Circular is a useful tool for a general evaluation of the costs under state management
grants, it does not identify grant management functions or other programmatic factors to consider
when reviewing state management grant proposals. Without a clear delineation of eligible grant
management functions for use during the FEMA review process, the potential exists for the approval
of non-essential or questionable activities.
We recommend that the CFO, in coordination with the Director of the Recovery Division, develop
procedures (using the listing of eligible grant management responsibilities compiled by the Recovery
Division) for the review of state management administrative cost grant proposals to ensure that
funding is approved only to meet essential and reasonable grant management needs.
DISCUSSION WITH MANAGEMENT AND AUDIT FOLLOW-UP
On August 16, 2006, we submitted a draft report to the CFO for comment. On September 7, 2006,
the CFO advised that they would withhold comments pending receipt of the final report.
Please advise us within thirty days of actions taken or planned to implement the recommendation.
Should you have any questions concerning this report, please contact Gary J. Barard at
Chief of Staff
Deputy Chief of Staff
Chief Privacy Officer
Under Secretary for Management
Under Secretary for Federal Emergency Management
Chief Financial Officer, DHS
Chief Procurement Officer, DHS
Audit Liaison, DHS
Audit Liaison, FEMA
Chief Procurement Officer, FEMA
Deputy Director, Gulf Coast Recovery
Chief Financial Director, Gulf Coast Recovery
Additional Information and Copies
To obtain additional copies of this report, call the Office of Inspector General (OIG) at
(202) 254-4100, fax your request to (202) 254-4285, or visit the OIG web site at
To report alleged fraud, waste, abuse or mismanagement, or any other kind of criminal
or noncriminal misconduct relative to department programs or operations, call the
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STOP 2600, Attention: Office of Investigations - Hotline, 245 Murray Drive, SW,
Building 410, Washington, DC 20528, fax the complaint to (202) 254-4292; or email
DHSOIGHOTLINE@dhs.gov. The OIG seeks to protect the identity of each writer